Rethinking the Allocation of Medical Malpractice Risks between Patients and Providers

Regulation of medical professions

“…Although a near consensus existed regarding the need for reform, no consensus existed on the appropriate nature of medical malpractice reform. For example, some in the law and economics literature have proposed a move toward a contractual basis for medical malpractice liability (Epstein, 1976(Epstein, , 1978(Epstein, , 1986Robinson, 1986a;andHavighurst 1983, 1986). Others have suggested that medical malpractice should adopt a no-fault liability system similar to worker's compensation or no-fault automobile insurance Brennan, 2001, Weiler, 1991;Abramson, 1990;Johnson, et al, 1989;AMA, 1987;Danzon, 1985b).…”

Economic Analysis of Medical Malpractice Liability and Its Reform

“…Malpractice liability may not be needed to deter under-investment in treatment when physicians do not bear treatment costs, however. Finally, the traditional analysis finds that malpractice liability need not be mandatory if patients are informed about the costs and benefits of liability, and thus can rationally contract over it (Epstein 1976;Havighurst 1984;Robinson 1986;see Thaler & Sunstein 2008), as is explained in section 4 infra.…”

“…liability because they can, and will, obtain the same benefit by contracting into liability. By contrast, patients who do not benefit from traditional malpractice liability would benefit from using the right to contract for liability terms that they prefer, including full waiver of the right to impose liability (see Epstein 1976;Robinson 1986;Danzon 1997;see Thaler & Sunstein 2008, Ch 14;Epstein & Sykes 2001;Havighurst 1986; see also Hylton 2000). 36 Beyond this, some suggest that contracting over liability is the best way to reform malpractice liability because patients and providers are better informed about the costs and benefits of different liability provisions (Epstein 2005).…”

“…Moreover, Arlen (2010) also shows that contracting over liability may not enable patients and providers to benefit from the network externalities associated with optimal malpractice liability. specific liability imposed by contract provides the same incentives to select treatment as state-imposed malpractice liability (see Hylton 2000, formal model;see Epstein 1976;Robinson 1986;Danzon 1997). Yet this conclusion is not correct when malpractice liability is needed to induce physicians to invest optimally in obtaining the information needed to diagnose patients, select treatment, and provide treatment without excessive risk of iatrogenic injury (i.e., to make patient safety investments).…”

The Reform of Medical Malpractice Law:

“…By the mid 1970s, the malpractice insurance market was considered to be exjiericncing a "crisis" (Danzon. I9S5;Sloan, et al, 1991, Robinson, 1986. Not only did insurance premiums rise dramatically but in some states, most notably New York and California, malpractice insurance was not available at any price as iasurance carriers left the state.…”